Student Loan Refinancing Tips
Read these 19 Student Loan Refinancing Tips tips to make your life smarter, better, faster and wiser. Each tip is approved by our Editors and created by expert writers so great we call them Gurus. LifeTips is the place to go when you need to know about Student Loan tips and hundreds of other topics.
Talk it Over With Your Cosigner
If you applied for a loan with a cosigner you should talk any decisions over with him or her. While you may be the primary borrower with no plans of defaulting on the loan, if something were to happen they should at least know what the terms of the loan were.
Discuss the terms of refinancing, repayment options and your current financial status. Keeping your cosigner in the loop helps to insure that all parties are on the same page. It stands to reason that if you have trouble making a payment one month, your cosigner would rather help out than have the loan default.
Cosigners are usually someone you know personally like your parents. This should make it easier to work out any necessary arrangements that would be in the best interests of all parties involved. They may even wish to have a copy of all paperwork related to the loan for their own records. This is a good idea in case something happens to any paperwork in your possession. They may also have their own ideas on reducing student loan interest.
Refinancing More Than Once
Prior to July 1, 2006 you could refinance student loans more than once to take advantage of the most recent interest rates if they were better than your original one. This is no longer the case. There are, however, some circumstances that would allow a second refinancing.
If, for example, you have multiple consolidation loans from different lenders you can apply for a new loan to bundle them all into one payment.
You would also be able to refinance more than once if you have new student loans that were not part of the original consolidation. Check the Web site of your lender for a list of eligible student loans for a second student loan refinance.
If you fall into one of the above categories a second refinancing would be in your best interests. This is a perfect reason for keeping tabs on financial aid news and rate changes even after graduation. There are always new opportunities popping up to save more money. Why not take advantage of as many as you can?
Finding Lenders Who Will Refinance Student Loans
Chase Tip: If you do decide to refinance your undergraduate loan with a private lender, you should also know that many will have specific criteria that you will have to meet. For instance, you will need to have established good credit or find a cosigner willing to support your application. Typically, in order to refinance your undergraduate loan, you will also need to be graduated or will be graduating soon from a college program.
Tax Incentives For Refinanced Student Loans
Most student loans already provide tax benefits to borrowers who are in the repayment period. The interest you pay can be deducted on your annual taxes up to $2,500 per year depending on your adjusted gross income. When you are looking to refinance your student loan, make sure the new loan terms still allow you to claim this deduction. This is especially true if you decide to combine your student loan with another type of loan for repayment. Check with a tax adviser to get more information on the student loan interest tax deduction on refinanced loans.
Finding Lenders Who Will Refinance Student Loans
If you currently have student loans through a private lender and are looking to refinance, start with that lender to see if they can offer you better terms than what you currently have. Since you have already established a history with that lender they may be willing to work with you. You can also identify other lenders by doing an Internet search to find those private student loan companies that will work with you. When working with a private student loan company, there are a number of criteria that must first be met before any student loans can be refinanced. These include:
1. Already having privately funded student loans.
2. Have at least $5,000 in private student loan debt.
The Disadvantages Of Refinancing Your Student Loans
Refinancing your student loan is not always a good option. If your goal is to reduce your monthly payment by extending the life of the loan, you could end up with a higher interest rate and hardly any savings on the payment. Some lenders may also charge you a fee for student loan refinancing which adds even more to your overall costs. Before you apply to refinance your loan, ask your lender to disclose all costs that you will have to pay. If you end up owing more with very little reduction in your monthly payment, it may not be worth it to consider this option.
It's the Small Things That Matter
The easiest way to lower your interest rate when refinancing your loans is to finish the process before your grace period is up. There is usually a six month grace period after graduation before you must start repaying your loans. If you refinance before the end of this window, your rate is automatically reduced by .6 percent. This rate is locked in for the remainder of your loan repayment.
This may seem like a small percentage but it is more substantial if you look at the big picture. Combine this .6 percent rate reduction with further rate reductions based on consecutive on-time payments and cash-back incentives. Now you are getting the bigger picture. Your student loan interest is shrinking by the minute.
It is not about one incentive or reduction. Look for the best combination of all these features when refinancing and your loan package will shape up to be much better than you thought it could.
There is the potential to drastically reduce your interest rates, principal loan amount and monthly payments through refinancing during the grace period and continuing to make payments on time and in full. Once you consolidate your loans you start repaying them, unless you notify your lender that you wish to continue with your grace period. So make sure to let them know how you wish to proceed.
Avoid "Senioritis," Get A Head Start On Life
Your senior year is the most important one when it comes to refinancing your loans. Most people wait until they have graduated and are already in their grace period before considering their options. This gives them less time to absorb large quantities of information and make an informed decision.
Start looking into your options at the beginning of your senior year in college. This will give you plenty of time to get a handle on the intricacies of refinancing and the implications it holds for your future.
There are too many steps and too much information to soak up in the grace period between graduation and repayment. Starting early allows you to take it one step at a time and pace yourself.
That is not to say it takes a full year to complete the entire process, but there is no reason to cram it into a few days at the end of the year either. Some students get what people call “senioritis” and slack off during their last year of classes. Do yourself a favor and don't let that happen with refinancing student loans.
Lender Incentives
Lender incentives can save you big bucks when it comes time to refinance student loans. These are incentives offered to help save you money for refinancing with a particular company. Take these into account when deciding what you are going to do. A loan with a slightly higher interest rate but superior incentives could save you more money than one with a lower rate.
The most common lender incentives are based on making a certain number of consecutive on-time payments. These include rate reductions, cash-back, or principal reductions. The principal reductions are when a percentage of the remaining debt is expunged and you are no longer responsible for that portion.
There are also rate reductions associated with setting up automatic payments/debits in some refinancing packages. If you have alternative bad credit loans or any loans that have high interest rates, these incentives can make a big difference in the amount you have to pay back.
If you find a lender with a great interest rate but not the right incentives, contact them and see if they will implement any incentives for you. Who said you can't have your cake and eat it too?
Make Sure You Don't Pick A Lemon
It has been established that there is a ton of information to consider when it comes to student loans. Refinancing is just one of the many areas that require careful attention. People tend to get nervous with so many numbers thrown at them and jump at the first consolidation offer in case interest rates shoot through the roof.
Don't let this happen to you. Shop around and find out what the various lenders are offering for refinancing options. Some people will try to bully you into taking a package that is far from the best you could get.
Try telling a lender that you are going to look at some other possibilities because they are not offering what you need. See if they offer any concessions to keep you with them. Student loan refinancing is like a chess match. You don't want to let yourself get cornered.
Take charge and you will end up with the best deal you can get. No one wants to buy a car that turns out to be a lemon and put more money into it than it's worth. The same thing applies here. A lemon leaves you with student loan interest as far as the eye can see.
Priorities Are Key
When refinancing your student loans it is a good idea to calculate your total debt. This includes loans, credit cards and any other type of money owed. Make a list of all your debtors and prioritize them. Loans would typically be at the top of that list since they represent the largest dollar amounts, both in principal and interest.
Once you determine what you can afford each month you can come up with a plan on how to get out of debt and minimize student loan interest. Armed with this information, you will be more prepared to refinance student loans in the best possible manner.
All kinds of debt factor into your day to day life. In order to be prepared to handle refinancing of college funds you must take into account other forms of debt. Otherwise you will not be able to choose the most efficient way to eliminate them.
Goal of Refinancing Student Loans
The goal of refinancing student loans is to lower your monthly payment and make them more manageable. You have to refinance your federal and private loans separately, and will most likely be able to refinance your federal loans at a lower interest rate. Private ones are made under the assumption that your income will increase once you graduate and therefore you will be able to pay more. This means your interest rate will generally be higher on private student loans.
It is possible to reduce your monthly payments by refinancing at a lower interest rate or extending the duration of your loan. The first option would be a reduced interest rate which lowers the monthly and overall amount you have to pay back. Obviously lowering your interest rate and having more manageable payments is ideal. However, this is not always possible.
In that case, extending the length of your loan will effectively reduce the size of your payments, though this will increase the amount of interest you must pay over time. Whichever method you choose, it is a good idea to pay more than the new minimum payment whenever possible.
Can A Refinanced Student Loan Be Cancelled?
After you complete the process to refinance your student loan, there is no longer an option to cancel it. Unfortunately, once you have completed all of the paperwork and closed on the loan, the bank considers you to be obligated to repay it based on the terms provided. At that point, they send the funds to the lender of your old loan and pay it off. Since they have already tied up the money for you, there are no options to change it. If you feel that you were treated unfairly or that illegal actions were used to get you to accept the loan, you can talk to your lender about your concerns. In addition, you can contact the agency in your state that regulates banks or the FDIC to explain your complaints.
PLUS Loan Refinance
Just like any other student loans, there are options to refinance PLUS Loans. In fact if you are consolidating other student loans, you may want to include your PLUS Loan in with those to get one monthly payment. Just like when you got your PLUS Loan, a credit check may be required. If you do not meet the credit granting criteria of the lender, you may need to add a cosigner to the loan. An advantage of refinancing a PLUS Loan is that you may be able to cut your interest rates and your monthly payments making the overall cost of the loan more affordable.
Refinancing a Perkins Loan
You can refinance a Perkins Loan, but you have to ask yourself why you are doing it. There are many benefits that you will lose in a refinance and it may actually end up costing you more over the life of the new loan. Perkins Loans have a fixed rate of 5 percent so you would be hard pressed to find a loan that could offer you a better deal. In addition, any rebates on the principal or deductions of the interest rate will be lost in a refinance. It is also important to consider that there are a number of ways to have your Perkins Loan forgiven unless it is refinanced. There are so many benefits to having a Perkins Loan left as is, that you should seriously consider your options before making the decision. Find out more details from your lender and then determine if you want to move forward with a Perkins Loan refinance.
Defaulted Student Loans
When you default on a student loan, there are few options available to get you out of trouble. However, it may be possible to talk to a lender about refinancing the loan. This may help you lower your monthly payment and therefore restore your credit history. Not all lenders will be willing to do this so you best bet is to start with the lender who currently holds your student loan. They have the most to lose if you don't make payments so they may be willing to work with you on alternative options to put you in a position to be able to make the monthly payments.
The Benefits Of Refinancing Your Student Loans
Most students looking to refinance their student loans do so to lower their monthly payment. When you refinance you may be able to get a lower interest rate especially in cases where you are combining one or more student loans. You also can look into options for extending your repayment terms. Loans serviced through the federal government often have the best repayment terms and interest rates, but if you are going through a private lender make sure you find out what they can offer you. Remember, when you extend the length of your loan to reduce your monthly payments, the amount you will pay overall in interest of the life of the loan will be high.
Qualifying For Student Loan Refinancing
If you are refinancing private student loans, there are a number of criteria that your lender will need to consider before approving the loan. To start, you will probably need to undergo a credit check. In addition, your lender will consider the types of student loans you are interested in refinancing. Keep your government serviced loans separate from those through a private lender. The federal loans often have other benefits and a lower interest rate that you don't want to lose. Comparison shop before you settle on a lender to refinance your loans for you to get the best interest rates and terms.
Refinancing A Consolidated Student Loan
When interest rates drop, you may consider refinancing a student loan that has already been consolidated especially if it has a high rate of interest. If you have the option to lower your interest rate and maybe change your repayment terms at the same time, then this may be worthwhile to consider. Ask upfront for an estimated monthly payment and find out how much interest you will pay over the life of the loan. If it meets you needs then discuss with your lender other terms that you need to know before you complete an application.
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